Alpha fighting UMWA in preparation for asset auction: $500 million stalking horse bid in place
By Scott Robertson
Bristol, Va.-based mining company Alpha Natural Resources hopes to emerge from Chapter 11 bankruptcy by June 30 after a planned auction of assets, which should net the company $500 million or more in cash. The auction is scheduled to take place May 16.
Alpha announced March 8 it had filed reorganization plan documents in United States Bankruptcy Court, which, together with the planned auction, would provide Alpha the opportunity to address all creditor claims. The company also stated it anticipated being able to emerge as a “streamlined and sustainable reorganized company able to satisfy its environmental obligations on an ongoing basis.” The environmental obligations are key because of a 1986 Supreme Court ruling stating that even in bankruptcy, government-mandated reclamation costs cannot be abandoned.
The company confirmed to The Business Journal, “The plan of recovery and reorganization provides financial support for the smaller restructured Alpha with the primary purpose of fulfilling the reclamation obligations, so some of the remaining unsold mines will continue operating. The plan of reorganization includes funding for the reorganized Alpha as well.”
A major sticking point in the process, however, could be the company’s obligations to United Mine Workers members and their families. Before the sale of the company’s assets can occur, those obligations must be eliminated in some way. Alpha has asked the court to allow it to reject its contracts with the UMWA, stating, “These are all difficult decisions because they impact our people and their families, but they are also necessary actions if Alpha is going to successfully emerge from bankruptcy in the coming months.”
The story so far
On Aug. 3, 2015, following a disastrous two-to-three-year period in which the coal industry faced unprecedented regulatory headwinds just as its worldwide market began a steep decline, Alpha filed a voluntary petition for bankruptcy protection under Chapter 11 in the United States Bankruptcy Court of the Eastern District of Virginia Richmond Division. The filing listed Alpha’s total assets on a consolidated basis as $10.1 billion, with total debts of $7.1 billion. The five largest creditors listed were all Union Bank of San Franciso, based on five separate senior bond issues due between 2017 and 2021. Those issues range from $263 million to $577 million. The next largest creditor was Wilmington Trust Co., with $109 million in bonds due in 2015. No other creditor was listed at a value greater than $8 million.
Following an examination of Alpha’s assets and debts, on Sept. 17, 2015, the court approved a $300 million credit agreement under which Alpha would continue operations. Part of that agreement was a stipulation that by Jan. 5, 2016, Alpha would provide the United Mine Workers of America a written proposal for settlement of the Labor and Legacy obligations owed by Alpha to UMWA members.
In early December 2015, talks commenced between Alpha and the UMWA. According to docket document 1873, Alpha employs 610 active union members (11 percent of its workforce) and provides benefits for 2,600 retired union members. The company reports spending $52.9 million on healthcare benefits for the union employees in 2015, inclusive of approximately $17.8 million for the active union employees and $35.1 million for the retired union employees. In addition, the company says it owes Labor and Legacy Obligations to approximately 2,200 family members of living and deceased union-member employees.
On Jan. 4, 2016, Alpha provided a written proposal to the UMWA regarding possible settlement. Three weeks later the UMWA had filed 300 separate requests for further information from Alpha.
In the meantime, Alpha continued working with its creditors to establish a path out of Chapter 11. On Feb. 8, 2016, Alpha filed docket document 1464, seeking permission to hold an auction of its salable assets, with the major lenders providing a reserve, or “stalking horse” bid of $500 million.
Details of the auction were listed in the document, including the possibility of the sale of assets beyond those listed in the stalking horse bid (the stalking horse bid assets are listed on page 18 of this issue). “Anyone could bid on any one or all of the assets,” the company confirms, though with caveats based on bid requirements, qualifications and other determinations.
On March 8, 2016, Alpha released a statement saying it has filed a reorganization plan based on the auction of its core operating assets. Despite the fact that Alpha will be forced to auction off its core assets, CEO Kevin Crutchfield was upbeat in his assessment that the company will be able to do more than just meet its reclamation obligations when it emerges from Chapter 11.
“By leveraging core assets for sustainable productivity, while addressing the stewardship obligations of our remaining properties,” Crutchfield said, “these filings represent an important step in our effort to effectively restructure the company and emerge from Chapter 11 better positioned to meet new market realities. While markets continue to be challenged in the near term, we firmly believe that coal’s role as a vital fuel source for electricity generation and steel production is secure for the foreseeable future, both here and around the world.”
The next day, the UMWA provided Alpha its own written Labor and Legacy settlement proposal, which the company said the union described as a “take it or leave it” proposition. Alpha estimated the union proposal would achieve only $2 million of the $60 million in labor cost savings the company needs.
On March 28, 2016, the company asked the court to intervene in the negotiations with the UMWA in order to allow the restructuring to proceed. The company said it must achieve cost savings of $200 million in order to maintain operations for the restructuring to be successful, with $60 million of that to come from cost savings related to union employees.
The company further said the stalking horse auction cannot proceed subject to Labor and Legacy Obligations, nor can the company carry the debts following the sale. The assets to be sold in the stalking horse auction constitute the salable assets the company now possesses, it said. The remaining assets, dubbed the reclamation assets, are unsalable. They will be retained, and, where practical, operated by the company for the principal purpose of conducting reclamation activities. The company said in docket document 1873, “There is no realistic scenario in which the Reclamation Assets could support the ongoing payment of the Labor and Legacy Obligations. Thus, they must be eliminated.”
Labor and Legacy hearing:
April 12 or April 19
Bid deadline for stalking horse auction: May 9
Auction: May 16
Approval of bids: May 26
Emergence from Chapter 11: June 30